Content
- A start for North-South carbon market cooperation
- Group Insolvency under IBC
A start for North-South carbon market cooperation
Context and Background
- Event: On 17 September 2025, India and the European Union (EU) unveiled the New Strategic EU–India Agenda, outlining five key pillars:
- Prosperity & Sustainability
- Technology & Innovation
- Security & Defence
- Connectivity & Global Issues
- Enablers across pillars
- Breakthrough Clause: The EU agreed to link the Indian Carbon Market (ICM) with the Carbon Border Adjustment Mechanism (CBAM) — a potential game-changer for India–EU trade and climate cooperation.
Relevance:
- GS-3 (Environment & Economy): Carbon pricing, market-based mitigation, green trade mechanisms, industrial decarbonisation.
- GS-2 (International Relations): India–EU cooperation, climate diplomacy, WTO negotiations.
- GS-2 (Governance): Institutional architecture of carbon markets and regulatory integration.
Practice Question :
- “The linkage between India’s Carbon Market and the EU’s CBAM represents a new phase in climate diplomacy.” Discuss the potential benefits and challenges of integrating India’s carbon pricing mechanism with global systems.(250 Words)
The Linkage: What It Means
- Mechanism: Carbon prices paid by Indian exporters will be deducted from the CBAM levy at the EU border.
- Purpose: Prevents double taxation on carbon emissions and rewards early decarbonisation by Indian industries.
- Significance:
- Aligns India’s Carbon Credit Trading Scheme (CCTS) with global carbon pricing systems.
- Enhances trade competitiveness for Indian exporters under EU’s climate trade regime.
Understanding the Two Systems
A. EU’s Carbon Border Adjustment Mechanism (CBAM)
- Operational Since: 2023 (transition phase till 2026).
- Objective: Level the playing field by taxing imports based on embedded carbon emissions.
- Carbon Price: €60–€80/tonne CO₂ (EU ETS average).
- Sectors Covered: Steel, cement, aluminium, fertilisers, electricity, hydrogen (expansion planned post-2026).
B. India’s Carbon Market (CCTS/ICM)
- Launched: 2023 under Energy Conservation (Amendment) Act, 2022.
- Administered by: Bureau of Energy Efficiency (BEE) & Ministry of Power.
- Carbon Price: Currently €5–€10/tonne.
- Nature: Based on intensity-based reductions (project-level offsets), not absolute emission caps yet.
- Regulatory Gap: No equivalent to EU’s independent emissions registry or compliance-grade cap system.
Key Benefits of Linkage
- Trade Shield: Protects Indian exporters from double carbon taxation.
- Incentivises Decarbonisation: Encourages industries to reduce emissions early for global credit recognition.
- Market Integration: Positions India within global carbon markets worth >$850 billion (World Bank, 2024).
- North–South Cooperation Model: First-of-its-kind linkage between a developing and a developed economy’s carbon markets.
Core Challenges and Barriers
Structural Weaknesses in ICM
- No Absolute Caps: EU’s ETS is cap-and-trade; India’s is intensity-based, making tonne-to-tonne verification difficult.
- Verification Deficit: India lacks independent regulators and emission registries akin to EU’s European Environment Agency (EEA).
- Market Fragmentation: Multiple voluntary offset registries dilute credit quality.
Price Disparity
- EU carbon price: €60–€80/tonne
- India: €5–€10/tonne
- Result: EU may refuse full deduction, deeming Indian carbon prices “insufficient,” leading to partial CBAM charges.
Political–Economic Tensions
- Industry Pushback: Domestic firms may resist higher compliance costs → risk of policy dilution.
- Sovereignty Issue: CBAM gives EU implicit oversight over India’s climate policy credibility.
- WTO Frictions: India has formally opposed CBAM as a “green protectionist” and unilateral trade barrier at COP and WTO.
- Trust Gap: EU’s recognition of Indian credits contingent on data transparency and regulatory parity.
Strategic and Legal Implications
| Dimension | Implication |
| Trade | Avoids double carbon levy; enhances Indian exports’ competitiveness (esp. steel & aluminium sectors). |
| Climate Diplomacy | Tests India’s balance between climate leadership and trade autonomy. |
| Sovereignty | CBAM linkage may indirectly subject India’s domestic policies to EU’s approval standards. |
| Compliance Risk | Domestic political reversal (e.g., relaxation of ICM) could instantly expose exporters to full CBAM tariffs. |
Pathways to Resolution
Technical & Regulatory Upgrades
- Develop Compliance-Grade Cap System: Move from project-based credits → legally binding emission caps per sector.
- Establish Independent Emissions Registry: Ensure third-party verification of carbon credits.
- Set a Floor Carbon Price: Align with EU CBAM levels via sectoral carbon contracts or price corridors.
Bilateral Cooperation
- EU can extend technical assistance under CBAM linkage for:
- MRV (Monitoring, Reporting, Verification) frameworks.
- Carbon pricing methodologies.
- Emission data transparency systems.
- India–EU Joint Working Group on Carbon Markets (proposed) could harmonize methodologies.
WTO-Compatible Design
- Ensure linkage respects “Common but Differentiated Responsibilities (CBDR)” under UNFCCC.
- Negotiate CBAM credits as mutual recognition instruments, not unilateral deductions.
Data Snapshot: Comparative Overview
| Parameter | EU ETS | India CCTS (ICM) |
| Year Established | 2005 | 2023 |
| Carbon Price | €60–€80/tonne | €5–€10/tonne |
| Coverage | 45% of EU emissions | ~30% of India’s industrial emissions (initial phase) |
| Governance | European Environment Agency, European Commission | Bureau of Energy Efficiency (BEE), MoP |
| Credit Type | Cap-and-trade (compliance-grade) | Project-based & intensity-based |
| Verification | Third-party, independent registries | Limited, evolving |
| Linkage Readiness | Mature | Transitional |
Strategic Significance
- For India:
- Boosts export competitiveness in EU (India–EU trade: €150 billion in 2024).
- Accelerates green industrial transformation and carbon pricing discipline.
- Provides carbon finance access for Indian industries (~USD 10B annual potential).
- For EU:
- Strengthens climate diplomacy with Global South.
- Validates CBAM as a globally integrative tool rather than protectionist.
- For Global Climate Governance:
- Establishes precedent for cross-border carbon credit recognition between developed and developing economies.
Conclusion
- The CBAM–ICM linkage is a symbolic and strategic breakthrough—a potential bridge between global trade and climate finance.
- Yet, institutional gaps, price disparities, and sovereignty concerns threaten operational success.
- For real impact, India must upgrade its carbon market architecture and negotiate fair recognition within CBAM.
- If implemented effectively, it could protect exporters, drive industrial decarbonisation, and position India as a leader in equitable carbon market diplomacy.
Group Insolvency under IBC
Background and Context
- India’s Insolvency and Bankruptcy Code (IBC), 2016 revolutionized debt resolution by ensuring time-bound and creditor-driven insolvency processes.
- However, it lacked a framework for “group insolvency” — cases involving interconnected companies within a business group.
- Fragmented proceedings for each entity led to conflicts, duplication, and value erosion (e.g., Jet Airways Group, Videocon Group).
Relevance
- GS-2 (Governance): Delegated legislation, institutional accountability, and executive overreach.
- GS-3 (Economy): Corporate insolvency, ease of doing business, financial stability, and legal reforms.
Practice Question :
- Discuss the significance of introducing a “Group Insolvency” framework under the IBC (Amendment) Bill, 2025, in strengthening India’s corporate insolvency ecosystem.(250 Words)
The IBC (Amendment) Bill, 2025
- Introduced during the Monsoon Session, 2025, it adds a new Chapter VA to address Group Insolvency.
- Aim: Coordinate insolvency resolution among holding companies, subsidiaries, and associates.
- Empowers the Central Government to define:
- Procedures for joint resolution.
- Rules for coordination and communication between companies under insolvency.
- Composition of a Common National Company Law Tribunal (NCLT) bench.
Key Provisions Proposed
- Section 59A(1): Authorises the Government to prescribe manner and conditions for conducting group insolvency.
- Subsection (2): Lists measures that may be prescribed, such as:
- Common NCLT bench for related entities.
- Coordination and communication committee among creditors.
- Common resolution professional (RP) or committee of creditors (CoC).
- Subsection (3): Allows government to apply IBC provisions with modifications to group insolvency cases.
Structural Concerns
- Delegation of legislative power:
- Excessive delegation to the Executive under “Henry VIII clause” (ability to amend primary law via subordinate rules).
- Violates legislative principle of non-delegation of essential functions, reaffirmed in Ajay Kumar Banerjee v. Union of India (1984).
- Skeletal framework: Key definitions (e.g., “group”, “coordination”) left vague — risks inconsistent application.
Definition of “Group” – The Core Issue
- Borrowed from Companies Act, 2013 (≥26% cross-shareholding).
- Critics argue this threshold is too narrow; should also consider:
- Operational interdependence,
- Common management,
- Financial linkages, and
- Cross-guarantees between entities.
- In EU and Singapore models, functional integration and inter-company guarantees are considered.
Procedural and Legal Gaps
- No clear procedural architecture:
- Does not specify whether proceedings will be consolidated or coordinated.
- Ambiguity in roles of multiple CoCs or RPs.
- Democratic deficit:
- Common CoC may dilute individual creditor rights under Sections 21–24 of IBC.
- Raises questions about voting thresholds and conflict resolution between entities.
Comparative Insights
| Country | Legal Model | Key Features |
| EU (Directive 2019/1023) | Cross-border group insolvency | Coordination through a “group coordinator”; retains entity autonomy. |
| Singapore | Omnibus insolvency regime | Consolidated process permitted if companies are financially interdependent. |
| U.S. (Chapter 11) | Substantive consolidation doctrine | Courts may merge assets and liabilities in exceptional cases. |
India’s Bill borrows coordination elements but lacks clarity on when consolidation is allowed.
Data and Practical Rationale
- As per IBBI (2024):
- 40% of corporate insolvencies involve entities within a larger group.
- Fragmented proceedings cause 20–30% value erosion of total group assets.
- Average IBC resolution time: 468 days, often extended by inter-company litigations.
- Group Insolvency could reduce delays by 30–40%, if effectively implemented.
Risk Factors and Criticisms
- Creditor Prejudice:
- Consolidating unrelated or weak entities may dilute creditor recoveries.
- Regulatory Overreach:
- Government’s power to modify IBC provisions via notifications bypasses Parliamentary scrutiny.
- Corporate Governance Concerns:
- May impact independent directors’ fiduciary duties if group liabilities are merged.
- Judicial Burden:
- NCLT already faces backlog of 25,000+ cases (2025) — group insolvency will increase complexity.
Recommendations for Robust Implementation
- Legislative Clarity:
- Explicitly define “group,” “coordination,” and “consolidation.”
- Specify triggers for common proceedings (e.g., >50% revenue interdependence).
- Institutional Strengthening:
- Dedicated Group Insolvency Benches in NCLT with financial experts.
- Protection Mechanisms:
- Safeguard standalone creditors through ring-fencing provisions.
- Transparency:
- Mandatory disclosure of intra-group guarantees and loans.
- Pilot Phase:
- Test model on select large groups (e.g., PSUs, infrastructure conglomerates).
Broader Implications
- Economic: Enhances enterprise value preservation and investor confidence.
- Legal: Aligns Indian insolvency jurisprudence with global best practices.
- Institutional: Strengthens IBBI and NCLT capacity for multi-entity resolution.
- Policy: Reflects India’s transition from “entity-centric” to “group-centric” insolvency framework.
Conclusion
- The IBC (Amendment) Bill, 2025 marks a crucial evolution in India’s insolvency law — a frontier with potential, but fraught with design flaws.
- Without clear legislative definitions, procedural safeguards, and checks on executive power, the “group insolvency” regime risks becoming a flaw rather than a frontier.
